Reliance profit fuelled by refining; gas worries remain

Reliance profit fuelled by refining; gas worries remain

3:46 PM, 1st August 2011
Reliance profit fuelled by refining; gas worries remain


· Q1 net profit 56.61 bln rupees.

· Gross refining margins jump to $10.3/bbl vs $7.3 year ago.

· Lower oil, gas production weighs on results.

MUMBAI, INDIA: Reliance Industries, under pressure for slowing output from its gas blocks, posted its highest ever profit, fuelled by stronger refining margins and steady growth in its petrochemicals business.

India’s largest listed firm reported a 16.7 per cent rise in net profit, slightly below forecasts, but analysts have said refining margins are peaking and the slowdown in its oil and gas business could continue, clouding growth in coming quarters.

“The street may be disappointed with the lower-than-expected core profit numbers,” said Deepak Pareek, Oil and Gas sector, Analyst, Prabhudas Lilladher brokerage.

“Profitability from now on will largely be a function of which way the petrochemicals and refining margins go,” he said.

Reliance, with interests in refining, petrochemicals, oil and gas exploration and retail, posted stronger refining margins in the quarter but lower oil and gas production.

Reliance has been under pressure over the past few months from an industry regulator and investors over slowing gas output, and its shares have suffered.

In May, India’s director general of hydrocarbons said the company was producing 48 mscmd (million standard cubic metres per day of gas) from its main KG basin block, off India's east coast, lower than the 60 mscmd it produced last year and far off the planned peak capacity of 80 mscmd.

But India’s approval recently of Reliance’s plan to sell a 30 per cent stake in 21 oil and gas blocks to UK-based BP as part of a $7.2 billion deal is expected to aid the company in boosting output from the deepwater blocks.

Reliance, controlled by billionaire Mukesh Ambani, the world’s ninth-richest man, is looking to expand beyond its core businesses into telecom and financial services, and last month said it planned to invest aggressively in retail.

“Our cash flows give us the unparalleled opportunity to allocate capital to higher-margin resource plays in leading markets around the world,” said Ambani in a statement, adding the firm also remains committed to investing in India.

Reliance’s net profit for its fiscal first quarter rose to 56.6 billion rupees ($1.28 billion) from 48.5 billion rupees a year ago. Its earnings were boosted by “other” income of 10.78 billion rupees, up from 7.22 billion rupees a year earlier, due to a larger cash balance and higher yields.

A poll of brokerages had forecasted quarterly net profit of 57.2 billion rupees.

Net sales rose 39 per cent to 810 billion rupees.

Reliance, which operates the world’s biggest refining complex in western India, saw gross refining margins in the quarter rise to $10.3 per barrel from $7.3 a year ago and $9.2 in the previous quarter.

The margins, a key measure of profitability, rose on higher demand during the quarter despite a 10.6 per cent fall in crude oil prices CLc1 in the same period. The refining segment accounts for nearly 70 per cent of its revenue.

Reliance’s petrochemicals business posted a 32 per cent rise in revenue on strong domestic demand. However, revenue from its oil and gas business fell 16.5 per cent for the quarter, the company said.

“We are building for flattish refining margins, while income from exploration business may be lower in coming quarters,” said Pareek from Prabhudas Lilladher.

© Reuters




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